Beating Taxes March 17, 2000February 15, 2017 College-Bound? Hang on for Utah My pal Less Antman has made a strong case for Indiana’s QSTP (Qualified State Tuition Plan), since temporarily downgraded until they get their administrative act together. But hang on: it looks as if the Utah legislature may have just fixed all the things that kept Less from ranking Utah ahead of Indiana. How nice that the states are beginning to compete in this arena. To find out when Utah’s changes become effective, if they do — and to shop around for the plan you like best — keep your eye on savingforcollege.com. And remember: many QSTPs are open to residents of any state, regardless of where the beneficiaries may eventually choose to attend college. And that the beneficiary, in many instances, can be anyone you care about — your butler’s kids, for example, not just your own. A millionaire writes: “How do I use your fund evaluator to get your suggestion for a higher yielding tax-exempt fund?” You could go to the Fund Finder box (where it says “enter any part of the fund name”) and type in “high-yield” (without the quotes) and look through the list of funds that shows up for tax-exempt or municipals, of which there are several. (Note: If you are in a high-tax state, you will want to buy a fund that invests only in your state’s obligations.) You have three basic decisions to make, it seems to me: 1. Do you really want to be in tax-frees at all? (Sounds like you do, and that’s fine. These days, tax-free bonds yield almost as much as taxable Treasury securities. So — especially if you’re in a high-tax state and buy safe “general obligation” bonds issued by that state — your after-tax return from municipals (as tax-free bonds are known) could compare very well with other fixed income investments, like taxable bonds or certificates of deposit or savings accounts.) 2. Do you want to invest in long-term bonds or short-term? (Huge difference. The first is a somewhat risky bet that interest rates will fall, or at least not rise much over the long run. The second is a convenient parking place for some dough until better opportunities come along.) 3. Do you want to invest via a fund or directly in bonds themselves? If you were a little guy, investing under $100,000, say, I wouldn’t recommend buying bonds yourself. But you’re not a little guy, so you may not want to give up the management fee that a fund charges . . . nor give up control over the specific kinds of bonds it buys. For example, you might prefer bonds with a specific maturity date. Or you might prefer bonds with an even lower level of risk than the ones the fund may sometimes buy to boost its yield (and, thus, boost its ability to attract new customers). The commission/spread you pay to invest in municipal bonds directly can be high, especially when it comes time to sell. But if you buy bonds that mature around the time you expect to need the money, you may avoid all sales costs by just waiting until they are redeemed. As with anything, before buying municipal bonds, be sure you understand what you’re doing, what their call provisions are, and how much of a haircut you might have to take if you needed to sell them before they expired. The market for something like New York City general obligation bonds is deep, and even a full-service broker won’t gouge you too badly. But for some obscure dormitory, toll-road or hospital issue? That’s another story.
Squeeze the Shorts? March 16, 2000February 15, 2017 When people think a stock is headed down and want to profit from that, they sometimes “go short.” That is, they sell shares they don’t own (they borrow them) and hope to buy them back cheaper (to return them). A sweet deal when it works. Borrow 1000 shares of a stock and sell them for $30 a share — $30,000. Then watch it fall to $18 and buy it back for $18,000 to return it. Bang: a $12,000 profit, less commissions and taxes. The problem comes if the stock rises. You may be forced to “cover” your short — buy back shares and return the stock — even if you don’t want to. Say the stock jumps to 50 and you are sitting with a $20,000 loss. You may have to quit while you’re behind, even though you’re all but certain the stock is now even more wildly overpriced and will eventually plunge. Why would you have to cover? For one of five reasons: First, you may find yourself completely unable to sleep or concentrate on your work with this nightmare hanging over your head. (What if the stock hit 100 or 200 and you lost your life’s savings?) For the sake of your sanity, you are squeezed into buying in the borrowed shares to close your position. (And your buying itself pushes the stock a little higher, adding to the woes of others who, like you, have sold the stock short.) Second, you may find that, while you are comfortable riding out the insanity, confident that this tree will not grow to the sky, your spouse does not share your view — and is making your life intolerable. For the sake of your sanity, you are squeezed into buying in the borrowed shares to close your position. (And your buying itself pushes the stock a little higher, adding to the woes of others who, like you, have sold the stock short.) Third, your broker may call and inform you that you have no choice: without an immediate infusion of fresh cash, you do not have enough assets in your account to support this short position, and it will be at least partially closed out whether you like it or not. (And your buying itself pushes the stock a little higher, adding to the woes of others who, like you, have sold the stock short.) Fourth, some crafty folks who are long the stock may try to increase your pain by instructing their brokers to move their shares from their margin accounts to their cash accounts. When they do that, their broker can no longer lend their stock to shortsellers. And if you happen to be the shortseller who borrowed those particular shares, your broker may not be able to find new borrowable shares to replace them with. So he may call and tell you that you have been forced to buy the shares to return them to their rightful owners. (And your buying itself pushes the stock a little higher, adding to the woes of others who, like you, have sold the stock short.) Finally, the first four reasons may have squeezed so many other shortsellers into buying stock to cover their shorts that now the stock is $95 and you are not $20,000 in the hole but $65,000, and suddenly reasons one or two or three, which had not applied to you before, now do. Eric Jones: “I know you prefer that people invest in stocks for the long term, but what about making a quick buck on special situations? Recently, Rambus (RMBS) went from $80 to $450 in a couple of weeks based upon a positive announcement and a lot of short covering. I’m sure that there are more stocks with a large short interest that are poised to shoot up on any good news. Would this be a strategy worth pursuing on a regular basis or at least once in a while? For example, 4 Kids Entertainment (KIDE), has a float of 5.2 million shares and 5.3 million shares shorted. The company has no debt. The company holds the world-wide licensing rights to Pokemon outside of Asia plus other licensing rights. If the Pokemon “fad” isn’t over yet, on any good news this stock seems ready to repeat the big run up in price it saw last year.” To which I responded: “You could luck out, Eric, but this isn’t investing, it’s game theory — and if you did win, you would share a large chunk of your good luck with Uncle Sam (while laying off only a small share of your losses).” To which Eric responded, with a malicious grin: “Sorta like shorting AMZN.” Touché. Except that, really, I see a big difference. With the short squeeze plan, you’re hoping something that’s already overvalued will become even more so. You’re hoping for (and, by buying, adding to) very wacky behavior, which ultimately does the economy no good. With a short sale of the type I occasionally make, you’re leaning against the tide of irrationality (or at least you think you are), not adding to it. I’m not suggesting you should be sainted for doing so. But rational valuation is an economic plus, where irrational valuation is a minus. Not to make a big thing out of Eric’s light-hearted comment, but as you can see, it got me thinking. Always a dangerous thing.
Omahaha March 15, 2000February 15, 2017 Two semi-bums strolling among the skyscrapers. Says one: “Have you ever wanted something so bad that you’d actually save up the money to buy it?” — Frank Cotham cartoon in the New Yorker. With respect to last Friday’s column on my trip to Omaha . . . Ed Lewis: “Accuweather.com and wx.com are weather sites far superior to weatherunderground.com.” Rob Schoen: “Enjoy your dailies. I’ve even learned to tolerate your occasional DNC/big government/liberal wacko columns (I’m a conservative wacko myself.) One thing I just don’t understand, though. Why on earth do you fly COACH? I do, because I work for a young start-up company and we watch every penny, but once we’re not a young start-up company, we all look forward to chance to ride the front of the bus. But you’re a successful author. Surely you COULD afford the front seats if you chose to. So, what gives?” Have you seen a lot of advertising on this site? Until I get this clickle thing worked out, so you can tip me a nickel or a dime if you like something I write, I am living off the scraps restaurants throw out just before closing each night, and sleeping in my car. Wait, no. That’s not it. Have you seen the seats in First Class? They’re enormous. My feet dangle off the floor like I’m six years old. It’s embarrassing! Wait, no. That’s not it. Have you noticed that a $329 supersaver in 8D costs $2,491 in 3B? That’s it! Actually, the truth is I generally do fly first or business class. But like most others up front, I don’t pay for it. I fly so much, and am so well treated by American Airlines, I am usually upgraded. The flight to Omaha was on Delta. Delta is a very nice airline, but to Delta, I am dirt. (Maybe they read my October 2, 1998 column.) Actually, American wasn’t born yesterday. The upgrades aren’t free. They cost about $75 per flight, depending on the distance. Is it extravagant to spend $75 for three hours’ comfort? Yes. But it seems like such a bargain compared with the extra $1,000 it’s “supposed” to cost, who can resist? Free TV “Clipping Service” “Enter a word or phrase in which you have some interest, and TVeyes will e-mail you a transcript whenever that word or phrase is spoken on television. Cool, huh?” — Steve Gilbert. Yes. Useless for most of us, but very cool. Tomorrow: Squeeze the Shorts?
Five Stocks You Should Consider March 14, 2000March 25, 2012 The stock market values Dell Computer at more than Ford and General Motors combined. Now that Chrysler has become a German company, more or less, that makes Dell, in Wall Street’s current estimation, more valuable than the entire U.S. auto industry. Indeed, you can add American Airlines, United Airlines and Federal Express to the balance — and, oh, what the heck, throw in the New York Times Company, too — and still DELL outweighs them all. (To see this graphically, click SCALE on the menu bar above. Not all the companies I’ve mentioned show up on SCALE’s prepackaged check-list, but you can add them. Or — easier — just take my word for it.) Is it possible this valuation makes sense? I am short a few shares of Dell — but very few, because I generally lose a lot of money shorting stocks and because Michael Dell is a lot smarter than I am. (Not that I’ve noticed him buying shares at this price.) Dell is of course just one of hundreds of examples of how Wall Street today values exciting young companies — and Dell is way far from being the youngest or most exuberantly valued. It is one of the most solid of the techs, with more than $20 billion in annual sales, well over $1 billion in profits, and a trailing-year’s price/earnings ratio of barely 80 or so. (Normally, one would consider 80 phenomenally high. But Yahoo, which also has earnings, and already has 100 million users, sells at 1,800 times trailing-year’s earnings. And tiny upstarts like Amazon, of course, have no earnings. I am short a few shares of these, also.) Compare Dell with Procter & Gamble. Both sell for just above $50 a share; but because Dell has nearly twice as many shares outstanding, investors are valuing the company at nearly twice as much (2.5 billion fifty-dollar bills instead of a mere 1.25 billion of them). I’m just old and boring enough to think that Procter & Gamble here — down dramatically after announcing that a hoped for 9% profit jump would more likely be an 11% profit decline — just might represent an opportunity. But I’m really an amateur at this stuff compared to some folks who know who really do their homework, and do it for a living. I had lunch Sunday with just such a friend. He’s a modest but highly successful private money manager whose photo you may have seen over the years in Barron’s. He and his partners take just a few positions and wait. Although past performance is no guarantee of future results, after their past performance they don’t need any future results. But I do, so I asked my friend what he liked. He gave me five stocks that he’s been buying around these levels. For those of you who prefer buying-and-holding individual stocks rather than mutual funds — thereby to save the annual expenses and control the tax consequences — you might consider adding these to your portfolio. I did. The first two, Yankee and Blyth, YCC and BTH, make candles. No, I am not kidding, and neither was he. Candles, he says, are hot. People buy based on appearance and scent, not price, and they are buying in smartly sharper quantities each year. It’s a decor thing. My friend likes vanilla in his office and “fir” at home. (And this is a straight friend, no less.) Now, you may be quick to say, who could possibly want to make money in candles when you can lose it on, say, candles.com? Losing money the new way is so much more exciting — and for now, at least, so much more profitable — than making it the old-fashioned way. But for starters, both of these stocks — and the other three as well — are selling near the bottom of their 52-week ranges, which in the days before “momentum investing” would have made them interesting because they are cheap. (Now, the interesting stock is the one that’s just tripled, and thus has momentum.) And there are a lot of other reasons my friend likes these five stocks, about which he waxes eloquent. The other three are General Dynamics, Jones Apparel, and US Bancorp — GD, JNY and USB. My guess is that if you put a bit of money into these five . . . perhaps a quarter of it in the candle-makers and a quarter in each of the other three . . . and if you waited a few years . . . you’d have more money than if you bought five of today’s high-flying new economy stocks. You know: the kind that money managers today say are “phenomenally expensive” but buy anyway because, they say, “you just have to own them.” PS – I have been wrong before. PPS – The advantage of owning the stocks directly — creating, in effect, your own Personal Fund — is that if one tanked, you’d sell it for a tax loss (possibly buying it back after 31 days, if you think at this lower price it has become an even better buy). And if one tripled, you might use it, not cash, to fund your charitable giving (assuming you had held it at least a year — and believe me, no one of these five is likely to triple in under a year). I’m still a great believer in no-load, low expense mutual funds. But especially in a taxable account, there’s a strong case to be made for owning stocks directly — unless you’re cursed with a gambler’s addictive personality. PPPS – I just checked, and there actually is a candles.com. I guess I shouldn’t be surprised. What’s more, it seems to be a very nice site, from a company called Wick’s End — and for all I know it’s making money, not losing it. But I do know this: for every single candle they sell at candles.com, somebody has to make a candle. So at least some of the profit to be earned in candles may ultimately come from making them, not dot-comming them.
Descartes Did Not Die of Lung Cancer in Kokomo March 13, 2000February 15, 2017 Joe Cherner: “Have you seen Philip Morris’ campaign about what a great company it is because it gives to certain charities? How about writing something about why Philip Morris is spending $100 million on an ad campaign to tell people about $50,000 it gave to a woman’s shelter?” Famous Last Words (according to my pal Bob): “Rene Descartes went into a coffee house and ordered a cappuccino. When he finished, the waitress asked him if he wanted a another. He responded, ‘I think not’ — and vanished into thin air.” Less Antman on Indiana: “Since I have praised Indiana’s Qualified State Tuition Plan to the sky, I think it only fair for me to concede that this was based purely on a review of the terms of the plan (i.e., how good a deal it is), and that the administrative errors reported by Joe Hurley on his web site fully justify his downgrading of the plan for the time being. I also would like to make sure that, since Indiana is apparently touting your support, you indicate your displeasure (and my displeasure) at their administrative and informational failings, so as to place pressure on them to clean up their act. Their plan still appears to me to be the best of the bunch. [But based on the latest from John Hurley, one should read one’s statements carefully and keep copies of all correspondence.]” Tomorrow: Five Stocks You Should Consider Buying
Omaha March 10, 2000December 29, 2016 I asked my friend Bryan Norcross, world-renowned weather man, what site he would suggest I use to check the weather before my flight to Omaha, and he came back with wunderground.com. Did you know that there are five Omahas in this country? Omaha, Arkansas; Omaha, Texas; Omaha, Georgia; Omaha, Illinois; and the real one? And that at 10am this past Tuesday the temperatures in all five were within 8 degrees of each other? The coldest was the real Omaha, at 64° and the warmest was Omaha, George, at 72°. Ah, frigid March. (Yesterday, in Washington it was 79°. Very nice, unless it’s the end of the world.) If you think I’m exaggerating by calling Bryan “renowned,” it is by only a little. Bryan is one of those meteorologists who actually know their hygrometers. He is widely credited with saving Miami from Hurricane Andrew, alerting folks far earlier than his colleagues, and then staying up 600 hours straight, talking everyone through just what they needed to do to minimize property damage and maximize their safety. Such was his celebrity that NBC actually made a two-hour movie out of all this. (Someone else played him, though he got a walk-on.) How many weather persons can say they have been the subjects of a full-length film? Move over Al Roker! Anyway, I was going to Omaha for lunch and I was a little afraid from the “Today Show” weather map that I might not get there. Or, worse, that I might get stuck there. (Nothing against Omaha, but I had to get back.) Wunderground.com calmed me down. The “Today Show’s” 70-mile-an-hour winds and blinding snow seemed more likely to be 20-mile-an-hour winds and light showers. So I left the house at 6am (you know I must believe in the cause to do anything at 6am), flew to Omaha for lunch, and was home (because of mechanical problems delaying the connection in Atlanta) at 2am. Now, I know what you are thinking. You are thinking, It would be so much faster with a private plane. Even a time-share jet, you are thinking, would have made this far more convenient. But that is not what I was thinking. I was thinking, I flew to Omaha for lunch! This planet has been around for 5 billion years and creatures who look more or less like us have been around for millions of years, and yet as recently as 150 years ago — the flash of an eye — it would have been incomprehensible. Imagine the expression on the face of someone in Abe Lincoln’s day to whom you described your plan. “Well,” you would say, “I am going to fly like a bird, only much higher and faster, and with a couple of hundred other people, inside a giant metal boat with wings, from Miami to Omaha. Except that I’ll stop in Atlanta on the way to change from one air boat to another — yes, I’m not kidding, they are made of metal and they fly — and while I am up several miles in the sky, waiters and waitresses will be bringing me a sticky bun and coffee while I listen to an entire symphony orchestra — no, they are not on the plane, too, but it almost sounds as if they are. I’ll read some magazines, speak with a friend in Paris, possibly use the outhouse, and before you know it, I’ll be in Omaha.” “You’ll speak with a friend in Paris?” “Yes. It’s easy to do from up in the air — you could almost shout real loud out the window — but actually, I will use my cell phone while I am waiting on the ground. It’s cheaper. My cell phone is a little thing about the size of a dinner roll. You press some buttons — it’s important to press the right ones in the right order — and then you put it to your ear. His dinner roll makes a funny noise in Paris, which tells him to put his dinner roll to his ear. And then we just talk, as if we were right next to each other.” “How is that possible?!” “No one knows.” Along the way, you’d have to explain automobiles (airport cabs), electric lights (to read the magazines after dark on the flights home, candles being impractical) and all manner of other things (Starbucks, Diet Coke). Part of me was annoyed to have taken 20 hours to do something that, with nonstops and no flight delays could have taken 14 hours door-to-door (allowing plenty of time for the lunch itself, which was a couple of turkey sandwiches and $100,000 for the Democratic National Committee). But most of me was dazzled, as I always am, no matter how many times I fly. And this was in coach. What a time to be alive.
Boosting the Folks’ Retirement March 9, 2000February 15, 2017 Rusty Stalder: “Is there anyway for my brother and me to contribute to a tax deferred retirement fund on behalf of my parents that will not reduce the amount they can contribute to their own IRA’s?” You could buy them a variable annuity, which grows tax-deferred, but I think that’s a rotten idea. Buy them, instead, a few shares of stock each year, or of an index fund, and just let them grow. (If they should shrink first, that’s OK, too. As long as you keep adding new money each year, any price declines just allow you to buy more shares “on sale.”) Because most stocks don’t pay much by way of dividends these days (and neither do index funds), much of the growth will be tax-deferred without suffering any of the annuities’ costs and fees. And when the time comes to begin selling, 20 or 30 years from now, the gains, most likely, will be lightly taxed — versus fully-taxed withdrawals from an annuity. Annuities are an expensive way to convert lightly-taxed long-term capital gains into heavily taxed ordinary income. Your folks have good sons.
Take the Day Off March 8, 2000February 15, 2017 You know what? Those last two columns were long! And you were probably up late last night watching the election returns. I’m giving you the day off. (As for this evening: “The West Wing” on NBC at 9.) Coming soon: “God Gave You Ten Utensils and a Sleeve”
Fund Costs March 7, 2000February 15, 2017 John Flaherty: “I just discovered your mutual fund calculator from a mention in this morning’s Boston Globe. It’s very useful. But there’s something about fund comparisons that has always puzzled me. Although I understand the implications of loads and fees on the overall performance of a fund, doesn’t it stand to reason that even with say, 3% higher expense fees, a person will make out better in a fund that has a 25% return over a fund that has, for example an 8% return?” Absolutely. Just find a fund that goes up 25% a year and you’ll never have to worry about fees. Indeed, if you start off with $25,000 and hang in there for 75 years somehow — transplants! aerobic mall walking! — it will grow to nearly half a trillion dollars. The problem, of course, comes in finding funds that will do better than average, let alone anything even remotely that much better than average. Looking back, you will find a few that have. But you are not trying to find funds that have, you are trying to find funds that will. Quite a different thing. The purpose of the calculator is simply to help you focus on how much better than average a fund manager has to do in picking stocks just to cover the transaction costs of his trades plus the management fee he charges you. My own feeling is that a manager who can fairly consistently out-pick his colleagues by 3% a year (his 12%, say, to their 9%) is a rare and wonderful talent. But if he incurs an extra 1.5% a year in transaction costs with all his maneuvering, and if he charges you 1.5% in management and 12b-1 fees, then what has he really accomplished? The 3% stock-picking edge is eaten up before it enriches you. (Note that in this example, that 3% is actually outdoing his colleagues by 33%. Right? A 12% return is a third higher than a 9% return. So it may sound fairly small, but it’s not.) How We Handle Taxes Our calculator also shows the rather dramatic effect taxes can have on your net after-tax results. Some funds are significantly better “tax-managed” than others. Index funds, for example, may be reasonably expected to expose their owners to very light tax burdens. But our tax projections should be taken with two very large grains of salt. First, our calculator projects future years’ tax burdens based on the last year’s burden. That’s OK if this last year was more or less a “typical” year for the fund (if there even is such a thing). But after a year of outsized realized gains and high tax exposure (or a bad year, with no realized net gains and no taxes), it will lead to crazy projections. Second, just because one fund exposes you to a lot more tax than another doesn’t mean that your gains in the other won’t eventually be taxed. They could remain forever tax-free if you should choose to use your appreciated mutual fund shares to do your charitable giving. Or if you should die without having sold them. (In that case, under current tax law, your heirs would get a “step-up in basis” to the value of the shares as of the date of your death. So try to go out on an up day.) But if you eventually sell your appreciated mutual fund shares, you will owe long-term capital gain tax on the appreciation. And our projections do not reflect that tax. (Plus, it’s certainly possible that a tax-efficient fund, piling up unrealized gains, would one day take some of those gains — although this is somewhat less likely for an index fund than an actively-managed fund.) So the advantage of tax-deferral is real — you get “the government’s” share of your money working for you for many years alongside your own — but it may well not be a completely free ride. At the end, when you sell, you do have to fork over some of the gain. And that tax bite is not included in our projections. (But you can get to it. Just proceed through our analysis until you get to our “Dump This Fund?” tool. There, choose a fund to compare yours with and click GO. In the second field where we ask for the “cost basis” of your shares, enter the same number that’s already in the first field. Now click GO again. Scroll down the page that appears and you’ll see, year-by-year, how your fund will grow before and after tax. It’s even smart enough to properly account for the basis of reinvested distributions.)
California Props March 6, 2000February 15, 2017 I know you’re not all from California — although aren’t we, really, in some sense? And from New York? And Paris! Ich bin ein Berliner! Anyway, having spent a good chunk of my life trying to pass three excellent California ballot initiatives four years ago — Props 200, 201 and 202 — I have some sense how tough this game is, and how easy it is for the opponents of a good initiative to defeat it or, I fear, proponents of a bad initiative, if it’s pitched right, to get it passed. The first California initiative that entered the national consciousness was Prop 13, many years ago. (The numbers assigned to propositions start at 1 and rise up into the hundreds over the years and then get reset to 1 again, as recently happened.) It’s usually easier to get people to vote NO than YES, but Prop 13’s promise to rein in California property taxes passed, and touched off a lot of similar passion around the country. Aspects of Prop 13 were definitely appealing, even to a public policy wonk. But as Richard Reeves pointed out in a long article in Money after it had been in effect for several years, Prop13 really gummed up the state’s finances — and with them, the state’s ability to educate its kids. So ballot initiatives are tricky things, though with the legislature in gridlock much of the time — at least in California — I wouldn’t be quick to eliminate them. Of the 20 or so measures on tomorrow’s ballot, here — for what my opinion is worth, and with apologies to those of you who will be canceling your subscriptions and demanding your money back — are the ones I think I understand: Prop 22 – Limit on Marriage. This is the so-called Knight Initiative, named after the state legislator who introduced it. It is opposed by, for starters, Knight’s own gay son, but also by a 12-page list of prominent officals and organizations, many of them religious. Even a few Republican legislators have come out against the Knight Initiative, not to mention KABC’s conservative talk show host, Al Rantel, who did a full hour opposing it, mocking Knight for refusing to come on the air and discuss his own initiative. You don’t have to favor gay marriage to oppose Prop 22. It’s divisive, intrusive, and unfair. No state permits same-sex marriage anyway, so it’s a law in search of a problem. And in states where similar laws have been passed, the new law has been used to dismantle previously gained rights (domestic partner health insurance, adoption rights, visitation rights.). In fact, there is an effort underway now in California to ban ANY laws that have sexual orientation in them, so the recently passed domestic partner registry, protection of gay kids at school, and employment nondiscrimination would all be overturned. Legislation similar to Prop 22 has been sent through the state legislature three times and been voted down each time. I would vote NO. Prop 23 – None of the Above. This initiative would place an additional choice on the ballot for each elected office: None of the Above. It may be telling that the main opposition seems to come from the Green Party, whose candidates may themselves currently function somewhat as a “none of the above” choice. I actually like this one, even though I think it’s almost always stupid to throw away one’s vote, and so would rarely if ever choose it myself. I would vote YES. Prop 25 – Campaign Finance Reform. This one’s a little tougher, but if I were a Californian, I would give it a try. (California newspaper editorial boards are divided.) No campaign finance reform will be perfect, but this one has a lot of sensible elements. I have a lot of respect for Max Palevsky, a well-known, long-time Democrat, gave the Prop 25 people $1 million to try to help them get the word out. For the pros and cons of Prop 25, along with all the others, click here. Or just vote YES. Prop 27 – Voluntary Congressional Term-Limit Pledges. Voluntary is better than mandatory, but I think term limits are a bad idea. The way to limit someone’s term is to vote him out of office. In a complex world, it makes sense to have members of Congress develop areas of expertise, rather than start fresh every few years. I would vote NO. Prop 28 – Tobacco Tax Repeal. This is the tobacco industry’s attempt to overturn Prop 10 from November, 1998 — the measure that actor/director Rob Reiner fought so hard to pass. Prop 10 was great. Overturning it is a terrible idea. I would vote NO — several times, if I could. Props 30 and 31 – Insurance Act Repeal. These propositions are born out of California’s horrible auto insurance system, which is what my Proposition 200 in 1996 had hoped to fix. I won’t take you through the whole thing (huge sighs of relief waft through cyberspace), but Prop 200 would have been a tremendous improvement for California drivers — and for all but the “luckiest” amongst the seriously injured. Props 30 and 31 sound good. They would let you sue my insurance company for bad faith if, after we got in a crash, you felt my insurer hadn’t given you enough money. Indeed, for those victims today who are treated badly, as many are, these Propositions would be good. But it’s a trade-off, because these propositions would increase the already huge incentives to inflate and invent claims, and to sue. Last I looked, three out of four injury claims in California were faked. (Michiganders claim whiplash after a car crash only about a fourth as often as Californians, because the Michigan system offers no incentive to fake claims.) But because pain does not show up on X-rays, there was no way to tell which three out of four. So most of the claims were — grudgingly — paid. You can imagine how expensive this is. Props 30 and 31 would make the insurance companies even less resistant to fighting suspect claims, and make cheaters even bolder in inflating or inventing their injuries. And the cost of all this would be passed on to — guess who. Anyway, it’s a trade-off with no completely simple answer. The YES side is financed by the lawyers, who would make more money if Props 30 and 31 passed. The NO side is financed by the insurers. Knowing how much fraud and litigation is already inspired by the current system — and that ultimately it is honest consumers who pay for it — I’d vote NO. What California drivers really need is to adopt the Michigan system (only making a bit more of an effort than Michigan to accommodate the poor). But don’t get me started.